Airlines dragged down by fuel costs

Surging oil prices continue to weigh heavily on airlines’ earnings around the world, as carriers press hard to cut costs so rising fuel costs do not eat into revenue generated by a rise in passenger traffic.

After a three-year slump, international passenger and cargo traffic has risen by 8,3% since the beginning of the year, according to the International Air Transport Association (Iata).

But with the cost of oil skyrocketing in recent months, airlines’ jet-fuel costs are expected to top $97-billion in 2005, and Iata has forecast a fifth consecutive year of losses for the sector.

The first company to publish its earnings report was Japan Airlines, which on November 14 reported a net loss of 12,04-billion yen ($101-million) for the first six months of the year, compared with a profit of $86,9-billion a year earlier.

The airline said it expects to post a full-year loss as its operating costs jumped by more than 10%, largely due to a fuel bill that soared by 32%.

In the United States, the high oil price, which rose to more than $70 in August, proved too much for some airlines, prompting Delta and Northwest, the country’s third- and fourth-largest airlines, to file for bankruptcy in September.

United Airlines, which is already undergoing bankruptcy reorganisation, posted a third-quarter net loss of $1,77-billion. Jet fuel was the company’s largest expense, ahead of wages, it said.

In Europe, traditional carriers have been able to limit the damage caused by the high oil price by raising the price of tickets amid strong demand.

In October, Air France-KLM reported an 8,9% rise in passenger traffic from the same month a year earlier.

Meanwhile, its rival British Airways said its passenger traffic rose by 6,4% in the same month. But it reported a 17,7% slide in pre-tax profits in the second quarter, and said the oil price remains a “challenge” for the sector.

Irish no-frills group Ryanair said its unit costs climbed by 8% in the first half of the year, but excluding oil costs would have fallen by 7%.

For freight operators, which have been forced to deal with sustained high oil prices and cannot pass the cost on to passengers, the only way out is to cut costs, former Iata head Pierre Jeanniot said.

In 2004, Iata launched a programme called “Simplifying the Business” aimed at creating savings of $6,5-billion per year for the industry.

Among the initiatives are electronic ticketing, self-service check-in, radio-frequency identification for luggage and bar-coded boarding passes that travellers can print out at home.

The savings have been presented as necessary for airlines to survive, but will undoubtedly have consequence for employees.

“You need fewer people when you ‘simplify the business’,” said British Airways’ head of European operations, Pat Gaffey.

The company, which has cut 13 000 jobs since the September 11 2001 attacks on the US, plans to reduce its personnel costs by a further £300-million.

In the US, Delta Airlines plans to take advantage of its bankruptcy proceedings to restructure and renegotiate wage cuts for its staff in a bid to save an additional $3-billion by the end of 2007.

“The rise in the oil price is not only a bad thing.
It makes it possible to keep the pressure on internally to cut costs,” an Air France executive said.—AFP

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